In the High-Tech Sector, Optimism Is Just a Faded Memory

By JOHN MARKOFF

Published: October 16, 2002

SCOTTSDALE, Ariz., Oct. 15 — At this year's Agenda conference, traditionally an upbeat gathering of the computer and Internet industries' elite, attendance was low and the mood even lower. Executives engaged in a hunt for the bottom of the decline with few seeing even a hint of new growth on the horizon.

For the first time, those who have had a near-religious faith in enduring technical progress debated whether their industry had become a slower-growing and mature one. Some executives dared to express the view that the boom years of double-digit growth and dot-com wealth might be over not temporarily but permanently.

"A lot of people don't want to admit that the technology industry is maturing," said Ann Livermore, an executive vice president of Hewlett-Packard who leads the company's services division. "It's a maturing industry with a slowing growth rate."

Some executives offered another view, saying that it was not the industry's maturity but the rapid pace of the technology development driven by Moore's Law — the doubling of computing capacity every 18 months — that has created the industry's financial crisis.

For example, they argued, taking on huge long-term debt burdens during the telecommunications industry build-out of the 1990's was out of sync with the rapid depreciation and obsolescence of computer-based equipment.

Whatever the cause of the crisis, several of those who attended were even more blunt about the prospects of the industry, which until last year was held out as a bright spot and a national economic savior.

"The tech industry is in danger of looking like Japan: it's down and out for a long time," said Rob Glaser, the chairman and chief executive of RealNetworks , a maker of multimedia software.

Several of the nation's leading technologists expressed the view that the technology downturn was an immediate threat to the nation's global industrial standing.

"Maybe our current downsizing in the U.S. tech industry is a permanent downsizing and we are headed toward being a second-class industrial citizen in the world," said Patrick Gelsinger, vice president and chief technology officer of Intel .

The new pessimism, which has become increasingly common in Silicon Valley, contrasts sharply to the prevailing view among high-tech executives last year. The consensus then was that the technology recession would be characterized by a "v-shaped curve" with a sharp decline and quick recovery.

At this year's conference, however, it was apparent this idea had passed. "We're talking in terms of years, not months," said Eric Schmidt, the chief executive of Google, the Internet search engine company, which, although privately held, is one of Silicon Valley's remaining bright spots.

This year's gathering was also distinguished by the presence of politics and national security issues in a forum that had until now been dominated by technology and the economy.

On Monday, Richard Garwin, a national security expert and former I.B.M. physicist, engaged in what was billed as a fireside chat with the conference moderator, James Fallows. Dr. Garwin spelled out various potential doomsday terrorism threats ranging from nuclear war to biological warfare.

On Tuesday the conference for the first time presented a speaker from what could only be described as the old economy: Charles T. Burbage, the executive vice president and general manager of Lockheed Martin's Joint Strike Fighter program.

The new interest in military technology is being driven at least in part by a search for financial growth. David Readerman, director of growth equity strategy at Thomas Weisel Partners, a San Francisco investment firm, said that military contractors were increasingly of interest to him.

"I'm not finding a lot of growth in the technology areas our firm was founded on," he said. "So we cast a net and the defense sector is what comes up."

The most heated debate of the event came during a panel of Hollywood executives who criticized the technology industries for their lax adherence to intellectual property protection and copyright issues in the digital era.

That evoked a response from many executives here that the entertainment industry's unwillingness to explore new business models was primarily responsible for the industry's lack of growth.

"We're in a real technology gridlock," said Peter Schwartz, co-founder and chairman of the Global Business Network, a consulting group based in Emeryville, Calif. "All of the entrenched industries are attempting to protect their positions so that in broadband, digital television and digital distribution of content, we're stuck."

COTTSDALE, Ariz., Oct. 15 — At this year's Agenda conference, traditionally an upbeat gathering of the computer and Internet industries' elite, attendance was low and the mood even lower. Executives engaged in a hunt for the bottom of the decline with few seeing even a hint of new growth on the horizon.

For the first time, those who have had a near-religious faith in enduring technical progress debated whether their industry had become a slower-growing and mature one. Some executives dared to express the view that the boom years of double-digit growth and dot-com wealth might be over not temporarily but permanently.